It has been an up and down second quarter in the US housing market. Data has been mixed at times, with some data suggesting reason to hope for a late 2008 turnaround, and other data hinting that more trouble could be on the horizon. Tuesday (June 24), both government and private home price indices indicated a record fall in home prices during April, prompting many analysts to suggest another year of price drops is on the way.

The prominent Standard & Poor’s/Case-Shiller home price index includes 20 large metropolitan home markets across the US to assess the housing market. The 20-city index began in 2000 and for the first time in April, all twenty cities showed depreciating home prices. Charlotte, North Carolina had been holding out the last couple reports, but it dropped .1 per cent from April 2007 to April 2008. The complete index dropped a remarkable 15.3 per cent from April last year to April this year. Even more amazingly, the 21-year old 10-city index had its biggest drop in its history with a 16.3 per cent decline from April to April.

The Case-Shiller index is well-respected as a general assessment, but the Office of Federal Housing Enterprise Oversight (OFHEO) index is a more broad-based, inclusive assessment of housing as it takes into account rural housing. The OFHEO index dropped 4.6 per cent from April 2007 to April 2008, also a record since its start in January 1991. April 2007 was the peak point for the index.

The picture could get worse according to some major analysts. Immediately following today’s reports, some analysts called for a 10 per cent price drop in the overall housing market over the next year with a possibility of a 20-30 per cent decrease in the big city based Case-Shiller index.

Recent reports on new home sales have actually shown improved interest in some areas of the home buying market. The biggest ongoing dilemma for the overall market is an excess of houses that have been holding prices down for over a year. In spite of potential improvement in home buying, it will take some time for buyers to work their way through the plethora of housing inventory. Buying interest needs to pick up more dramatically for demand to overtake supply in the market

Despite today’s numbers, there are still some economists who believe we have hit market bottom, even thought it will take time to build the market back to where it was. Some were quick to point out that a few of the bigger housing markets, like Denver, Chicago and Cleveland, actually had worse annual drops in March than they did in April. One month is certainly not a change in direction but signals a reason to be interested in what May numbers show.

Consumer confidence hit a 16 year-plus low Tuesday based on continued consumer concern over food and gas prices, and housing and credit markets struggles. Wednesday afternoon, the Fed announces the results of its two-day policy meeting. Most analysts expect the Fed funds rate to remain the same, but financial markets are going to be especially interested to listen for signs of how soon rate hikes might be coming. As inflation concerns mount, it is widely believed the Fed is going to move interest rates back up swiftly at some point in late 2008. A higher Fed fund rate should help slow down inflation and rising prices by boosting the value of the dollar. Interest rate hikes are a currency-positive.

Market Recap

Stocks were flat Monday despite some concerns over the financial services sector and some poor earnings news. The Dow and S&P were both down less than a point. The NASDAQ trimmed 20 points. Credit problems continue to cause market uncertainty as Goldman Sachs warned investors to sell the sector and Merrill Lynch is expected to write down $3.5 billion in second quarter losses. Goldman Sachs also told consumers to sell consumer discretionary stocks. The flat trade continued early Tuesday as investors seemed content to hold tight until Wednesday afternoon’s Federal Reserve meeting announcement. Later in the day, trade turned sour on the back of record low home sale values in April, and a 16 year-plus low in consumer confidence. The Dow dropped 34 points while the NASDAQ and S&P were down 17 and 3 at the close.

Neil Kokemuller
Tuesday, June 24, 2008
9:04 PM EST

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.

Please note: The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments. Actions taken on the basis of the information shared is at the sole risk and discretion of the individual. Currency investment poses significant risk of loss.